Hillary Rosner, a Colorado-based freelance journalist, tweets about her search for a post-Affordable Care Act health insurance plan:
Here’s the thing. You can have it one way on “rate shock,” but you can’t have it both ways.
There are, broadly, two ways that individual market health insurance could work. One is the situation we have now in most states, where it works more or less like homeowners’ insurance: The insurer evaluates how many claims you’re likely to make and sets your premium at expected claims plus a profit margin. If you have diabetes, you’ll pay more, just like you’d pay more for homeowner’s insurance if you lived on the beach.
Rosner is seeing a mild form of that problem. She’s pricing out a policy that would start in 2013, meaning it’s not subject to ACA rate-setting rules. The insurer thinks her prior Caesarian section makes her likely to make somewhat more claims so it’s adding 20 percent to her premium. Rosner thinks that’s messed up, and a lot of people agree.
Which brings us to the other way you can price health insurance: mandate that insurers charge the same price to everyone, regardless of health risk. The ACA does this, with the caveat that insurers are allowed a limited degree of age-based premium variation. Under ACA rules, the insurer wouldn’t be allowed to raise Rosner’s premium over a C-section.
But because insurers know they’ll have to write a lot of policies to sick people at a loss, they’re going to raise premiums across the board to make up the difference.
That’s why ACA-compliant health plans are “way too $” in Colorado, as Rosner puts it. The pricing structure doesn’t just protect people with modest claim-increasing conditions like a prior c-section, but people with very expensive pre-existing conditions like diabetes or cancer or HIV/AIDS.
That protection costs money. What Rosner is getting in exchange for a higher premium on an ACA-compliant plan is reassurance that insurance will be available to her, regardless of her future health condition.
That said, it’s likely that Rosner has been personally made worse off by health plan switches induced by the ACA. Even before the ACA, federal law barred insurers from dropping their existing members for developing a new health condition, or raising their premiums as a result of that condition. This is a policy called “guaranteed renewal.”
If Rosner had been able to stay on her old plan, she wouldn’t face either a 20 percent C-section-related premium hike or the need to pay to cross-subsidize people with more costly medical conditions. But that narrow protection for pre-existing conditions, often cited by conservatives as a reason to think the existing individual market is working, hasn’t been working very well for very many people.
First, the value of the protection is limited. You can’t change plans or insurers without subjecting yourself to a large premium increase or a coverage exclusion. The insurer can’t raise your premium because of your personal health condition, but it can raise premiums based on the average claims filed by all the participants in your plan. To this end, the insurer can close your plan to new participants; over time, the healthier participants will tend to leave, driving up premiums for those who remain. And you’re out of luck if you move to another state.
Second, this protection only works if you maintain continuous coverage in the individual market from the same insurer, and very few people are doing that. Over 80 percent of people who lack coverage from an employer or the government go uninsured rather than buying coverage through the individual market. Those who do carry individual coverage often do so for only a short time, such as during a gap between jobs that provide coverage.
Michael Cannon has noted that guaranteed renewal was a common feature of individual health insurance plans even before it was mandated by federal law, and it doesn’t raise premiums nearly as much as the ACA’s rules do. But that’s actually a demonstration of how guaranteed renewal doesn’t work: It’s not very expensive for health insurers to offer because few insureds actually figure out how to turn it into effective coverage for expensive health conditions they develop.
This is a key difference in how liberals and conservatives view the health insurance market. Conservatives see a market that is working so long as you’re responsible enough to keep yourself covered at all times so guaranteed renewal protects you from pre-existing condition exclusions. Liberals see a market that is stacked against people’s efforts to access such protections.
Given how few people are making the protections of the existing system work, liberals have the better of this argument. They’ve found a way to make insurance available to the chronically sick that will actually work for most of the public. But they haven’t been upfront about the fact that their fix will be paid for with higher premiums for lots of healthy people, including Rosner.